A Company Perspective on Transatlantic Industrial Cooperation

Dr. Scott Harris
President, Continental Europe,
Lockheed Martin

Let me address the issues of cooperation and where I think it is going from the standpoint of a company that is very much engaged in and committed to transatlantic industrial cooperation. I am pleased to be sharing this panel with several of my company’s leading partners who are also deeply invested and involved in this process.

I am starting with the premise that to achieve the transformational goals we are all talking about, transatlantic industrial cooperation is going to be essential. In other words, NATO transformation will depend on transatlantic industrial transformation and cooperation. And like so many defense issues today, this really has to start with a discussion about budget.

BUDGET ISSUES

Though we have mentioned it many times already, let me say again that the procurement gap—the fact that the U.S. spends twice as much as Europe—and the research and development gap—the U.S. spends close to six times what is spent in Europe on defense R&D—is a fundamental reality of our business environment. These gaps are going to affect the ability of militaries to have the capabilities they need and the ability of industries to do what they need to do. It is also going to drive industries to do certain things that make sense industrially, which, if you are a European company, means cooperating with American companies that have access to investments in R&D technology on the other side of the Atlantic.

All of this is significant because we have heard a few times at this workshop that there is no technology gap, that there is only a resource gap; but that cannot be true over time if the spending ratios are six to one year after year after year. To give you another way of thinking about it, my company, with the exception of three or four countries in Europe, does more defense R&D than any country in Europe—which means that there is a gap between us and everybody else. So there is a great urgency to cooperate now.

INDUSTRIAL COALITIONS

Currently NATO forces, as well as allied forces and European forces, are focused outside of Europe; therefore, they have to be deployable, they have to be sustainable, and they have to be expeditionary. That is why we have a new emphasis on mobility, lift, communications, networks, supportability, and logistics; and industry must have these same capabilities as well. For example, in places like Afghanistan and Iraq, you need to have deployed industrial forces to sustain and support the deployed troops and products. So that must be our future. And if it is our future, we must be able to support allied or coalition forces through industrial partnerships and coalitions. That is the business vision of my company.

MARKET AND TECHNOLOGY ACCESS

One other element to add to this discussion: You cannot talk about transatlantic industrial cooperation without talking about the ability of industry on the European side of the Atlantic to have access to the market and the technology on the other side of the Atlantic. In 2005, the team led by Lockheed Martin using the Agusta Westland helicopter platform was selected to be the presidential helicopter fleet for the U.S. president. We had the best product, but the competition was difficult politically. We were committed, however, and we prevailed and we are now committed to making the program a very powerful example of transatlantic cooperation. We believe that the best product, the best technology, and the best team should be able to pursue opportunities, and if the opportunity is transatlantic, then we will put together the best that we can.

A second example of successful transatlantic cooperation is MEADS. We have signed a development contract and are moving forward on it. Our partner is LFK, which will soon be part of MBDA. But the program is more than an example of significant cooperation; it is also important because it is doing new things. We are cooperating on technology development and testing for future command and control architectures for ballistic missile defense. The program is going to create a capability that is deployable for tactical missile defense and transportable on a C130J or A400M—a transformational capability.

The Joint Strike Fighter is another premier transatlantic cooperation program. But it is not the traditional model of a little bit of workshare here and there. This is a model in which the partners are partners on the global program. If you are making a landing gear or a wiring harness for one airplane, you are making it for the whole fleet, including the U.S. fleet.

GUIDELINES FOR COOPERATION

There are several principles we think must guide the process of cooperation if it is going to work:

First, there must be reciprocal market access. We recognize that we can’t just export into the European market if the U.S. market is closed, and vice versa. Protectionism simply adds to costs, leads to unnecessary duplication, and provides less value to the customer in an area in which we are already resource constrained.

Second, we must have cooperative technology development in which the partners are actually developing the technology together: MEADS is a good example of such work as is JSF.

Third, we must integrate the transatlantic marketplace. Not very long from now there are going to be common requirements across the Atlantic for procurement and products, whether for networks, services, systems, weapons, or platforms, and therefore the marketplace will need to be integrated. We must gather the necessary political and economic forces that will enable this step. Industry will integrate if the political environment is right.

PROTECTIONISM, OFFSETS, AND THE CHINA ISSUE

I would like to end on an optimistic note but there are three other issues I would like to mention. One is protectionism, which I already mentioned, but I need to mention it again. Protectionism takes many forms, but it is the subtle form of protectionism that is the most insidious and potentially lethal to cooperation. It is not the “Buy American” legislation, which is a blunt instrument that can be identified and often opposed successfully; many people can see that it is not a useful way to proceed. But the more subtle forms of protectionism are things like preferences: The calls from governments to other governments to be good Europeans, to buy this product. It may not be the best product, it may not be the cheapest product, it may not even be the right product but it is the European product. That is the same kind of protectionism that “Buy American” is and it will undermine our ability to cooperate industrially and to use limited resources efficiently.

The second is offsets. Offsets are a market factor—they add cost but generally do not add benefit that is worth the cost. In most cases they make little sense; they certainly make very little sense in advanced industrial economies.

Third and last is the China issue. It is going to cause more trouble than it should because it is the perfect instrument for the U.S. Congress to become exercised. I worked on the Hill for nine years and I think I understand a bit of the mentality. The China issue is a dream issue: You get to stand up for American workers, bash the Europeans, and bash the Chinese, and nobody that has an interest will counter you. So it is a free shot for American politicians, at least that is what they think, which makes it difficult for Europeans to figure out what to do about China, because it is very possible that the United States will over-react. This issue needs to be addressed at the highest levels in a cooperative way. It is a government issue, not an industry issue, but if the governments do not succeed it will become a very significant industry issue.

CONCLUDING REMARKS

These are the obstacles that I see need addressing. But despite them the goal of transatlantic cooperation is worth it. The objectives of transformation—providing and maintaining cost-effective Alliance capabilities—are best served through a cooperative approach. We are committed to sticking with this work even though on some days it is not the easiest way to go.